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Interest rates could rise eight times over next two years, expert says

Record low interest rates across Australia could be coming to an end, with an expert suggesting rates could rise eight times in the next two years.

The Reserve Bank of Australia has currently set interest rates at 1.5 percent, a record low since last August, but former director of the RBA, John Edwards, believes they will rise over the next two years.

Speaking on 2GB’s Money News program with Ross Greenwood, Mr Edward said the question is not if rates will increase but "how far they will go up".

He expects the first rate increase to happen in March of next year and thinks rates will rise every quarter at a quarter of a percent.

"The RBA is saying look, at the end of 2019, growth will be 3 percent, inflation will be between two and three percent and we’ll have decent wages growth (in Australia)," he said.

"Those are circumstances in which you would expect interest rates to go up."

"I don’t think they will go up as far as what’s been normal over the last 20 years, but they will go up.

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"The policy rate today is 1.5 percent, which is really super slow, we’ve never been there before.

"I think the Reserve Bank would think at the end of 2019 it would like to see a policy rate around 3.5 percent.

"That's still low but on the other hand, it’s two percentage points higher than it is today.

"I don't think it will go up much higher (than that) and they'll do it very gently."

Mr Edwards said the Reserve Bank would "proceed very cautiously" to avoid too much added pressure on the economy.

But financial markets are predicting just one 25 basis increase by the end of 2018.

Deloitte Access Economics economist Chris Richardson also expects higher interest rates, but not to the same extent as Mr Edwards.

"We wouldn't see interest rates in Australia rise at all until sometime in 2018, probably a year from now, and by the end of 2018 you might have seen two interest rate rises," Mr Richardson told ABC radio.